The Australian dollar fell to its lowest since October 16 even after the Reserve Bank of Australia raised its cash rate. A divided 6-3 board vote and a change in policy language led analysts to conclude that the bar for further tightening is exceptionally high. The U.S. dollar ticked up for the first session in six.
On Tuesday, the Australian dollar dropped 0.4% to $0.6970, touching its lowest since October 16, despite an interest-rate increase by the Reserve Bank of Australia (RBA).
The RBA raised its benchmark cash rate by 25 basis points to an 18-year high of 4.85%. However, foreign exchange desks read the accompanying policy statement after the rate hike as a signal that the tightening cycle had reached its terminal ceiling.
RBA board splits 6-3 on the decision
Three board members voted to leave borrowing costs unchanged, a 6-3 split that was significantly more divided than markets had discounted.
Meanwhile, the bank called domestic financial conditions restrictive rather than somewhat restrictive. As a result, analysts concluded that the bar for further tightening is exceptionally high.
Dollar rebounds as risk appetite returns
The U.S. dollar index, which tracks the greenback against a basket of six major peers, climbed 0.1% to 101.87. The dollar had been under pressure as a slide in the artificial intelligence trade pushed investors out of stocks, the greenback and gold and into safe-haven assets such as U.S. Treasury bonds and the Japanese yen. On Tuesday, the AI trade rebounded and a risk-on mood prevailed.
Economic data also helped. Job openings in September were 7.523 million, the highest since May, according to the JOLTS report, ahead of the nonfarm payrolls report on Friday. Separately, new orders for manufactured goods in September increased 1.8% to $677.2 billion, against a consensus estimate of a 1.2% rise.
In Asia, the yen eased to 158.70 per dollar in thin trading, as Tokyo markets observed the Culture Day national holiday.
Midterm elections add to the focus
Currency traders also watched the U.S. midterm elections on Tuesday, with all 435 House seats and 35 Senate seats up for contention. Nonpartisan forecasts and prediction markets continue to favor Democrats to regain control of the House, while the Senate race remains tightly contested.
Source: Investing.com
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